chapter 6.2 part 2 Flashcards
What does it mean when we are trying to compute real measurements?
Actual quantities
What equation does real GDP = Nominal GDP/price index become?
It becomes real GDP = Nominal GDP / (price index / 100)
Why does real GDP = Nominal GDP/price index become real GDP = Nominal GDP/(price index/100)?
Since people have trouble working with decimals and the price indexes are usually decimals, the price indexes get multiplied by 100 to become easier to work with. Eventually, when trying to find the real GDP, we will need to reverse this to make the math work, so we divide by 100.
Is price index the same as GDP deflator?
Yes
Whenever you compute a real statistic, which year or period plays a special role?
The base year or base period
What is the base year?
The year whose prices we use to compute the real statistic
When we calculate real GDP, what do we do?
We take the quantities of goods and services produced in each year and multiply them by their prices in the base year, so we get a measure of GDP that uses prices that do not change from year to year.
What is real GDP also called?
Constant dollars
What is the GDP deflator (price index) of the base year?
100
What is the equation for the GDP deflator?
GDP Deflator = (Nominal GDP / Real GDP) * 100
Can you rearrange the real GDP formula to find the GDP deflator formula?
Yes
What is the same in the base year?
Nominal and real GDP
As long as inflation is positive, meaning prices increase on average from year to year, what is true?
Real GDP should be less than nominal GDP any year after the base year.
As long as inflation is positive, With the choices of real GDP and nominal GDP, which is greater before the base year?
Real GDP
